Consumers willingness-to-pay for quality food. Alison Burrell Wageningen University

Transcription

1 Consumers willingness-to-pay for quality food Alison Burrell Wageningen University

2 Key role of the consumer The supply chain exists to serve the consumer Consumers valuation of the product determines the value added to be distributed back up the chain

3 Given existing legislation, the question is : What value do consumers place on extra guarantees that the food they actually purchase meets the legal minimum quality requirements? quality differences over and above the minimum requirements? In economic jargon, what is the consumer s willingness-to-pay for quality?

4 Willingness-to-pay = preference? consumer s underlying preferences income are constrained by knowledge trust

5 Willingness-to-pay = preference? consumer s underlying preferences income knowledge trust consumer s choices willingness-topay (observable )

6 Why is willingness-to-pay difficult to measure? Prices are changing all the time (special offers, discounts, seasonal factors, differences in location) Many products have several quality attributes how to measure consumers valuation of each separately?

7 Willingness-to-pay extra for quality WTP for extra quality is distributed over individual consumers from zero to the highest amount WTP for extra quality depends on the quantity purchased WTP a specific price premium depends on the price of the lower quality good Trade-off between size of price premium and market share

8 FOOD QUALITY ASSURANCE SCHEMES Within-chain standards and quality protocols does not lead to product differentation, possibly to differentiation by store or type of outlet Quality differentiation on the final product market differentiation of final products according to quality attributes can try to measure whether consumers benefit from this very difficult to measure consumers willingness to pay for it possible to measure consumers WTP for specific quality attributes many different approaches and methods exist

9 Product differentiation by quality attribute Region (PDOs, PGIs) Comté cheese Dehesa de Extremadura ham Organic production Particular rearing/manufacturing methods Free range eggs Farmhouse cheese Environmental/ethical characteristics Neuland meat Fair Trade coffee Products may have attributes from several categories

10 Empirical information on WTP for food quality (1) Two types of data Actual choices (RP - revealed preference) Hypothetical choices (SP - stated preference) Typical data sources Scanner data Purpose-built surveys of what consumers buy (e.g. budget surveys) Contingent valuation (CV) surveys Contingent behaviour surveys (e.g. choice experiments, experimental auctions, intentions surveys)

11 Empirical information on WTP for food quality (2) Actual choices Hypothetical choices Scanner data Purpose-built surveys other information (consumers income, product knowledge etc) often not collected limited to products on the market non-experimental data may raise problems for analysis Typical data pros & cons CV surveys Choice experiments, etc hypothetical bias can extend to products not yet available experiments can be designed to avoid problems that make analysis difficult

12 Hypothetical bias (HB) How to deal with hypothetical bias? Skillful design of experiment/survey Cheap talk Explaining real consequences of the survey Note: studies have found that HB a problem only with direct elicitation (i.e. contingent valuation, but not choice experiments) Bias due to non-anonymity can be as great as HB (for both RP and SP valuations)

13 Methods for estimating WTP for quality (1) ACTUAL CHOICES hedonic price model discrete choice modelling demand systems (e.g. AID) structural equation modelling HYPOTHETICAL CHOICES random utility model (RUM) Multinomial logit Conditional logit Mixed logit Random parameter logit Latent class models

14 Methods for estimating WTP for quality (2) Revealed Preference (actual choices) Stated Preference (hypothetical choices) CONFLICT?

15 Methods for estimating WTP for quality (2) Revealed Preference (actual choices) = Stated Preference (hypothetical choices) CONFLICT? COMPARISON/ CROSS VALIDATION?

16 Methods for estimating WTP for quality (2) Revealed Preference (actual choices) + Stated Preference (hypothetical choices) CONFLICT? COMPARISON/ CROSS VALIDATION? JOINT ESTIMATION?

17 Questions and discussion Wageningen UR